Does excluding sin stocks cost performance?

نویسندگان

چکیده

We examine the impact of excluding sin stocks on expected portfolio risk and return. Exclusions involve relative to market peers. show how this tracking error can be translated into an equivalent loss in return, which is negligible at low levels, but not higher levels. However, even modest ex ante levels may lead sizable compounded underperformance post. Taking asset pricing perspective we find that popular exclusions typically go against rewarded factors such as value, profitability, low-risk, harmful for returns. Theoretically itself also a priced factor, supported by empirical evidence. A premium might arise future though, if exclusion policies reach scale needed significantly raise cost capital stocks. Tracking minimized return restored filling gap left with non-sin offer best hedging properties similar or better factor exposures.

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ژورنال

عنوان ژورنال: Social Science Research Network

سال: 2021

ISSN: ['1556-5068']

DOI: https://doi.org/10.2139/ssrn.3839065